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Questions and Answers
A stock with a beta coefficient of -0.5 is less risky than the market as a whole.
A stock with a beta coefficient of -0.5 is less risky than the market as a whole.
True (A)
A portfolio consisting of stocks with high beta coefficients will always have a higher expected return than a portfolio consisting of stocks with low beta coefficients.
A portfolio consisting of stocks with high beta coefficients will always have a higher expected return than a portfolio consisting of stocks with low beta coefficients.
False (B)
The CAPM assumes that investors can lend and borrow at the risk-free rate.
The CAPM assumes that investors can lend and borrow at the risk-free rate.
True (A)
A stock with a beta coefficient of 1 is less risky than the market as a whole.
A stock with a beta coefficient of 1 is less risky than the market as a whole.
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Hedging strategies can eliminate all risks associated with an investment.
Hedging strategies can eliminate all risks associated with an investment.
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Inflation risk can be completely diversified away in a portfolio.
Inflation risk can be completely diversified away in a portfolio.
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A beta coefficient of 1.2 indicates that the security is less volatile than the overall market.
A beta coefficient of 1.2 indicates that the security is less volatile than the overall market.
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Diversification can eliminate systematic risk, but not unsystematic risk.
Diversification can eliminate systematic risk, but not unsystematic risk.
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In a portfolio, correlation coefficients range from -1 to +2.
In a portfolio, correlation coefficients range from -1 to +2.
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The capital asset pricing model (CAPM) assumes that investors can lend and borrow at the risk-free rate, but not at the expected market return.
The capital asset pricing model (CAPM) assumes that investors can lend and borrow at the risk-free rate, but not at the expected market return.
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Hedging strategies can entirely eliminate inflation risk.
Hedging strategies can entirely eliminate inflation risk.
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Risk-neutral investors prioritize the safety of principal over the possibility of a higher return on their money.
Risk-neutral investors prioritize the safety of principal over the possibility of a higher return on their money.
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Risk assessment is only used to determine the likelihood of loss on an asset, loan, or investment.
Risk assessment is only used to determine the likelihood of loss on an asset, loan, or investment.
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Risk-averse investors are more interested in capital gains from speculative assets than capital preservation from lower risk assets.
Risk-averse investors are more interested in capital gains from speculative assets than capital preservation from lower risk assets.
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Scenario analysis is used to obtain a sense of the certainty among returns.
Scenario analysis is used to obtain a sense of the certainty among returns.
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Risk-seeking investors choose the investment with the lower return regardless of its risk.
Risk-seeking investors choose the investment with the lower return regardless of its risk.
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Assessing risk is only essential for determining how worthwhile a specific investment is.
Assessing risk is only essential for determining how worthwhile a specific investment is.
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